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Buy First vs. Sell First

06/19/2012

Flash sales is an industry that caters to the immediate wants and desires of consumers. Every day, usually at noon Eastern across multiple flash sales websites, new sales with new inventory go up, and consumers begin purchasing within the minute. Consumers make impulse buys, but they don’t always get those impulses sated right away. Though flash sales may depend on consumer whims, the business side of flash sales must consider the cost implications of order fulfillment.

Flash sales retailers take two general approaches in managing inventory: sell first and buy first. Utilizing a sell-first strategy, retailers hold off on purchasing inventory until the sales are made. Essentially, they get a certain number of commitments from their customers; afterward, they place the orders from the wholesaler, brand or retailer that they’re working with and then fulfill the order. When flash sales retailers employ a buy-first strategy, they buy and stock the inventory ahead of the sale.

It’s not hard to tell which strategy is better for the consumer, and which strategy is better for the consumer. Buy first enables flash sales retailers to fulfill orders quickly, keeping their customers satisfied. Sell first, by contrast, creates a lag time between the placed order and fulfillment of that order, because the inventory is not in the physical possession of the retailer (To be fair, sell-first promotions typically offer consumers a notice that the merchandise may require a few weeks to fulfill the order). However, the latter is a more profitable approach, at least in the short-term, because no surplus is created. In a buy-first scenario, it’s virtually impossible to acquire the quantity that exactly meets consumer demands. As such, some inventory is wasted. Sell first ensures virtually no waste.

So which approach is better? Neither. In absolute terms, sell first is better for the business and buy first is better for the consumer, but in the real world, a balance must be struck. As a retailer, you want to keep your customers happy, but not at the expense of your business. You may be a fair business owner providing a valuable service, but you’re still in the business of making money. How do you strike that balance? Trial and error. Just like with many businesses, the challenge will be reconciling that which is better for your business and that which is better for your customers.